Gold returns to form in December 2017 alone

Raffles Place, Singapore - Three quick thoughts from Mining Analysts in Singapore after Gold appreciated 10% in December 2017 alone.

1. After a $120 per ounce rise, analysts are expecting higher prices

The latest forecast has come from GFMS Thomson Reuters, which said in its just-released fourth-quarter Gold Survey 2017:

“We expect gold prices to average $1,360 per ounce and hit a 2018 peak of over $1,500 per ounce later in the year.”

The price is around $1,360, a level seen for the first time after August 2016. It was $1,242 in the second week of December. The survey indicated that their forecast discounts three Fed rate hikes in 2018, although a potential overheating from the effect of the new tax reform could lead to more aggressive tightening, limiting gold’s upside. Furthermore, the US Federal Reserve is getting a new chairman next month, with President Donald Trump approving Jerome Powell to be Janet Yellen’s successor. The move is likely to provide continuity in US monetary policy, with the economy growing now for nine years straight. Also in 2018, the Fed will have eight meetings and although the next one is not projected to have any rate hike, there will likely be three of them later in the year. If the rate rises further, investment in debt could go up, limiting chances of gold prices rising as estimated. So far the weakening dollar has helped gold’s climb.

2. Chinese investors ramped up demand for gold as a means of freeing itself of the dollar.

In the forth quarter of 2017, Chinese investors ramped up demand for gold as a hedge against the movements of the renminbi. What's even more interesting is the news that China is going to replace the dollar with a gold backed currency in 2018. This is harder to fathom, but there are signs that is prompting a major shift in power from the West to the East. Apparently the shift is already underway, driven by confirmation that China Will Start trading an Oil Benchmark in January 2018 in the Shanghai Free Trade Zone (SFTZ). Trading on an oil benchmark in the SFTZ is enormous significant because traders within that zone are permitted, in contrast to elsewhere in China, to take gold out of the country. This is one of the clearest sign that China is moving quickly to free itself of the dollar.

3. India imposition of GST points to higher demand for yellow metal, both legally and illegally

An interesting aspect of 2017 for India was the imposition of the goods and services tax (GST), which came eight months after the withdrawal of high-value currency notes. Imposition of GST in July led to gold demand, and smuggling of it, rising.

Unofficial imports or gold smuggling in 2017 was 133 tonnes (17 per cent of consumption which is alarmingly high). This is some 10 tonnes higher than in the previous year. However, of the 133 tonnes, almost 70 per cent entered unofficially in India in the past six months after the three per cent GST was imposed. India’s legitimate gold demand in the fourth quarter of 2017 decreased by nine per cent year-on-year to 246.8 tonnes, but was the highest in four quarters. India also imported 216 tonnes of gold in the fourth quarter of 2017, down eight per cent year-on-year, while on-record investment demand decreased by 22 per cent year-on-year in the fourth quarter. Read what you may but these declines are no way offset by the increase in illegitimate imports.